American Workers Assuming More Financial Risks for Their Own Retirements


    The American workplace has become very risky and it’s not because of any safety hazards.

    It is more risky because individuals, most of them ill-equipped, are being asked to make more complex, long-term investment decisions that will affect their own retirement for many decades into the future.

    Preparing for the new retirement
    Preparing for the new retirement

    To complicate matters, the ill-effects of the 2008 recession, which destroyed personal wealth-building engines, combined with stagnant wage growth over the past few decades, has put millions of Americans at risk to have a financially-secure retirement.

    This combination of events, combined with efforts to cut Social Security, as well as other entitlements, has created a dangerous situation in which millions of Americans today find themselves ill-prepared for their own retirement. These conditions have effectively created a middle-class comprised of the working poor, and account for the 76% of Americans who, according to CNN Money, now live paycheck to paycheck. To make ends meet, the payday loan industry and pawn shops are now filling the income gap at the highest possible usury limits.

    Bad Financial Situations Today Affect Retirement Planning

    In a new study by the Economic Policy Institute, the Retirement Inequality Chartbook, authors Monique Morrissey and Natalie Sabadish, have compiled compelling charts which tell a story of falling retirement savings broken down by age, race, marital status and incomes. The authors also noted that people are “are ill-served by an inefficient retirement system that shifts risk onto workers.”  It also found that retirement security is increasingly being based on personal savings, even as real wages have stagnated. The data used in the study came from the Federal Reserve, U.S. Census Bureau, and the University of Michigan.

    This risk shift to average people is new characteristic of the American workplace. Not only do average people have to design their own retirement plans, but they now assume more risk for their own health plans, even as employers have benefited from productivity increases and higher profits.

    As noted in the book which addressed wealth destruction and its link to retirement security, the study found that the recessions of 2001 and 2008 made retirement savings more unequal among households aged 26 to 79.  The study also found that about half of households have no savings in retirement accounts, and for the other half, “savings are very unevenly distributed.”

    Among the findings in the new study  are illustrated in these interactive charts from the Retirement Inequality Chartbook:

    –Baby Boomers Retirement Savings Took A Hit in the Recent Recession

    –Retirement Savings Disparities are Big Even When the Focus Is On Workers With Savings and Approaching Retirement Age

    –Retirement Savings of Younger Households Have Been Flat or Declining

    –High-Income Households Are the main Beneficiaries of Rising Aggregate Retirement Savings

    –Retirement Disparities Are Part of a Larger Problem of Rising Wealth Inequality

    –Black Worker’s Pension Advantage Has Eroded

    –Minority Households Have Little Wealth to Tap For Retirement

    Savings in Retirement Accounts of Households Age 26–79, by Percentile, 1989–2010 (2010 dollars)








    $57,346 $20,240 $6,747 $506 $0


    $68,223 $26,986 $9,096 $1,516 $0


    $87,813 $35,975 $15,580 $4,957 $0


    $133,389 $56,023 $26,011 $10,004 $1,334


    $182,579 $74,502 $34,310 $12,254 $3,186


    $201,363 $80,545 $34,519 $12,657 $2,301


    $217,918 $97,434 $46,098 $18,334 $5,029


    $239,000 $85,000 $35,000 $14,000 $2,500

    Chart note: Retirement account savings include savings in 401(k) and other defined-contribution plans, IRAs (including employer-sponsored SEP IRAs and SIMPLE IRAs) and Keogh plans for small businesses.Source: Economic Policy Institute, authors’ analysis of Survey of Consumer Finance microdata

    Stagnant Wages Aggravate the Problem

    Another major contributor to these serious problems is wage stagnation. Consider the following from the paper, “A Decade of Flat Wages: The Key Barrier to Shared Prosperity and a Rising Middle Class,” by Lawrence Mishel and Heidi Shierholz, August 21, 2013.

    • “Weak wage growth predates the Great Recession. Between 2000 and 2007, the median worker saw wage growth of just 2.6%, despite productivity growth of 16%, while the 20th percentile worker saw wage growth of just 1% and the 80th percentile worker saw wage growth of just 4.6%.”
    • “The weak wage growth over 2000–2007, combined with the wage losses for most workers from 2007 to 2012, mean that between 2000 and 2012, wages were flat or declined for the entire bottom 60% of the wage distribution (despite productivity growing by nearly 25% over this period).”

    “This lost decade for wages comes on the heels of decades of inadequate wage growth. For virtually the entire period since 1979 (with the one exception being the strong wage growth of the late 1990s), wage growth for most workers has been weak. The median worker saw an increase of just 5% between 1979 and 2012, despite productivity growth of 74.5%—while the 20th percentile worker saw wage erosion of 0.4 percent and the 80th percentile worker saw wage growth of just 17.5%.”

    Implications for Financial Advisers

    The adviser industry prides itself on seeking the “mass affluent,” but as these numbers suggest, this target audience does not exist.  It’s like the population of Garrison Keeler’s Lake Wobegon where “all the women are strong, all the men are good looking, and all the children are above average.”

    Bill Gross of PIMCO said on Bloomberg radio today (September 6, 2013) that we now have two Americas: the top 2% and the rest of the population. This has been said but many others, but income inequality is not a popular topic since it smacks of class differences, but the statistics tell of radically different story. This has been a jobless recovery and the number of people employed today is the same as it was in 1974, according to Tom Keene of Bloomberg Surveillance radio. This is a staggering statistic, especially given the TARP program and the 0% interest rates given to the nation’s largest corporations and banks which did not use the money to re-hire laid-off workers. This money did not circulate back into the economy, but it helps explain why the wealth gap of the top 2% expanded to record levels.

    So what does this mean to advisers and investment professionals?

    This is the new reality. The pursuit of clients with “above average” wealth is more difficult. It also means income inequality, combined with no wage growth, is not conducive for the advisory industry, especially as momentum builds for greater fee transparency and the fiduciary standard. The alternative is expanding the wealth opportunities for all Americans, including financial professionals.

    Unfortunately, current Washington policies are seriously working against this effort. The longer this problem persists, and the larger the income gap becomes between wealthy and the working poor, the greater the problems, This will only highlight the class and racial gap discussion which many seek to avoid.

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    Chuck Epstein has managed marketing communications and public relations departments for major global financial institutions and participated in the launch of industry-changing financial products. He also has written by-lined articles for over 50 publications, five books and served as editor and publisher of nation’s first newsletter on the topic of using the PC for personal investing and trading. (“Investing Online, 1994-1999). He also is a marketing consultant, writer and speaker on topics related to investor protection and opportunities in the very dynamic cannabis industry. He has held senior-level marketing, PR and communications positions at the New York Futures Exchange, Chicago Mercantile Exchange, Lind-Waldock, Zacks Investment Research, Russell Investments and Principal Financial. He has won national awards from the Mutual Fund Education Alliance (MFEA) and his web site,, was named best small blog in 2009 by the Society of American Business Editors and Writers (SABEW).


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